Review of Differential Pricing in the Private Car and Home Insurance Markets

A consumer deliberating

Central Bank of Ireland has published its final report and Annex into differential pricing in the home and motor insurance markets in Ireland.

Differential pricing is where customers with a similar risk and cost of service are charged different premiums for reasons other than risk and cost of service.

Using data gathered from almost 11 million policy records and consumer insights from a survey of c.5,500 consumers, the report identifies where some pricing practices can lead to unfair outcomes for car and home insurance consumers.

Based on the evidence from the review we are proposing a series of measures to strengthen the consumer protection framework.

These proposals are set out in a formal consultation paper, seeking views from relevant stakeholders.

Our proposals

Price Walking explained
  • Our first proposal is to ban “price walking”. Price walking is where consumers are charged higher premiums, relative to the expected cost, the longer they remain with an insurance provider. Banning the practice will remove the “loyalty penalty” on these consumers and would mean that at the point of renewal, insurers could not charge customers who are on their second or subsequent renewal a premium higher than they would charge a year one renewal customer with similar risk and cost of service.
  • Our second proposal is to require providers of motor and home insurance to personal consumers to review their pricing policies and processes annually, to ensure that insurance providers maintain focus on their pricing practices and the impact of such practices on their customers, while also ensuring adherence to new pricing provisions and the fair treatment of consumers.
  • Our third proposal is to introduce new consumer consent and disclosure requirements to ensure the automatic renewal process is more transparent for all personal non-life insurance products.

We believe our proposals are the most appropriate outcome as they continue to allow insurers to offer discounts to consumers who shop around for the best prices, while ensuring those who remain with the same insurer for a number of years are not charged a loyalty penalty.

Consultation

We welcome views from stakeholders on our proposals and have opened a consultation for submissions until 22 October 2021.

Full details on how to make a submission can be found in the section titled “Public consultation process and next steps.”

Once finalised, and subject to the responses received in the consultation, we will incorporate the new measures into the Consumer Protection Code.

Final report and public consultation

Differential Pricing Review - Final Report and Public Consultation | pdf 1138 KB Differential Pricing Review - Technical Annex | pdf 3422 KB

The report is broken down into the following sections:

About the Central Bank’s review

The Central Bank conducted this review to better understand how differential pricing is used in the private and home insurance sectors and to establish its impact on consumers.

We examined the extent to which the use of these pricing practices lead to outcomes consistent with the Consumer Protection Code 2012. We also sought to identify the drivers of consumer behaviours, including hon consumers engage with the insurance industry, and assessed the adequacy of the governance and oversight of differential pricing.

The Review looked at the private car and home insurance markets because of their importance to consumers and to society more generally.

The review was divided into three phases.

Phase one – Market analysis (completed)

This phase involved an assessment of the market to establish how insurance providers are using differential pricing. The Central Bank issued a letter to insurance providers in September 2020, highlighting our initial observations, outlining our next steps and setting out our expectations of firms.  An interim report was published in December 2020, providing a progress update on our work.

Phase two - Quantitative Analysis and Consumer Insights (completed)

This phase involved a detailed data analysis of private car and home insurance policies. As part of this phase we conducted a consumer insights survey of 5,500 private car and home insurance consumers to further develop our understanding of how consumers engage with insurance providers. This work has now concluded and we have published the final report and consultation on proposals for reform.

Phase three – Conclusions and recommendations (completed)

Phase three is informed by the findings in phases one and two of the review. This phase sees the delivery our final report on differential pricing and consultation on proposals for reform.

See also: